Should I make a pre-auction offer on a property?

We examine how and when jumping the auction queue can work in your favour.

icon of a hammer When you’ve found the perfect property, the prospect of competing against other buyers at auction can be pretty intimidating. It can be tempting to try to avoid auction altogether with a pre-auction offer. This isn’t always a bad idea, but it’s imperative to first learn when, why and how you should make an offer prior to auction.

Know why they might say yes

Auctions are an incredibly popular way to sell homes in Australia. According to realestate.com.au, 20% of homes from September 2014 to September 2015 sold via auction. In capital cities this number was even higher, with around 30% of Sydney and Melbourne homes selling at auction.

It’s easy to see why vendors might want to take their chances at auction. After all, there’s no upper limit to what one could receive at auction, and the competitive bidding environment can serve to push prices skyward.

Likewise, there are plenty of reasons why a vendor might want to avoid auction. Recent auction results could make vendors a bit more wary about trying their chances. Auction clearance rates have been trending lower over recent weeks. According to CoreLogic, the combined capital city auction clearance rate for the week ending 24 September 2017 was 70.7%, down from 75.4% for the same week in 2016.

Auctions can be expensive endeavours. When taking into account marketing and the services of an auctioneer, Openagent.com.au estimates the expense of auctioning a $700,000 home could be up to $7,000. That’s a big gamble in a market where clearance rates are falling.

Time can be another factor that makes vendors rethink going to auction. Some vendors may have already found another property, and may be keen to sell their old property as quickly as possible. In a situation like this, a four-week marketing campaign for an auction can seem like an eternity.

If you understand some of the factors that could motivate vendors to sell prior to auction, you can make an informed assessment of the market and determine whether it’s likely vendors are looking to avoid auction.

Do the research

Before you make an offer on a property, make sure you know enough about its value to put yourself in serious contention.

Any property going to auction will have a rough idea, even before the campaign begins, of a price guide. While some vendors and agents can be a bit cagey on the question, you can usually get an idea of the suggested price if you ask directly.

But this is far from the only factor determining the price a property is likely to attract. Put in the time to research what price the property is likely to fetch at auction.

Where (and how) to find accurate property prices)

You can usually get a rough idea of the median price for similar properties by searching the property’s address on Domain or realestate.com.au. To get an even better idea, look at recent sales of similar properties. You’ll need to put some time in doing research to find truly comparable properties. Remember, not all two-bedroom houses are created equal, so pay attention to the condition, floor space, land space and amenities of the other sales in the area.

Show genuine interest

Demonstrate to the vendor and their agent that you’re interested in the property. You might want to attend several of the open inspections to begin to build a rapport with the agent and show you’re serious about the property.

When you do attend inspections, ask questions. Get as many specifics as you can about the house itself, and about the vendor, their goals and their expectations. Remember, the agent works for the vendor so they’re not likely to give away any sensitive information. However, you do want to demonstrate a genuine interest in understanding what the vendor is looking for and what offers they might be likely to consider.

You can also show you’re serious by taking some additional steps to research the property. Ask the agent for the contract of sale, and ask if there’s a building and pest inspection report you can purchase. Taking steps like this can set you apart from the rest of the crowd.

Make an offer they can’t refuse

It may seem counterintuitive, but when you make a pre-auction offer you need to go in bold and aggressive. In most business negotiations, you might want to hold your cards close and hesitate to give too much away. This strategy is unlikely to work when you’re trying to convince a vendor to sell before auction.

Make the vendor an offer near the upper limit of what you’re willing to pay. Remember, you’re trying to convince them that it’s worth avoiding auction to take your offer. You’re not going to accomplish that with a lowball price.

In addition to offering an enticing price, try to offer enticing terms as well. You can offer a short settlement time, a bigger deposit or even waive the cooling-off period. You want to offer the vendor better terms than they can expect at auction.

Be prepared

If your offer is accepted, you need to be organised and ready to make good on it.

This means you’ll need to have your deposit cheque ready to deliver to the vendor as soon as your offer is accepted. It also means you’ll want to have finance in order for you to move to settlement in a reasonable timeframe. It’s worth getting home loan pre-approval before you make an offer.

You also need to be ready to exchange contracts quickly. It could be worth having a solicitor look over the contract of sale before you put in your offer. Remember that until contracts are exchanged, there’s nothing stopping the vendor from entertaining other offers.

Be sure it’s the best strategy

The major caveat to all of the above is to be certain that making an offer prior to auction is a strategy you’re comfortable with. There’s every possibility that a pre-auction offer will see you paying more for a property than if you had gone to auction.

If your offer is rejected, you run the risk of merely adjusting the vendor’s price expectations upwards. This means the vendor and their agent can now tell any other potential buyers that they’ve had interest above the original price guide. Your offer now becomes the floor for everyone else.

If you do choose to make an offer prior to auction, you should do so because market conditions seem to favour buyers, and you think you can secure the property at a reasonable price without competing with others at auction. A pre-auction offer might not always be the right strategy, but if you know what you’re willing to pay and you want to take other buyers out of the running, it could be worth the risk.

Compare some of the market's best home loans below

Rates last updated February 24th, 2018
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Name Product Interest Rate (p.a.) Comp Rate^ (p.a.) Application Fee Ongoing Fees Max LVR Monthly Payment Short Description
3.59%
3.60%
$0
$0 p.a.
90%
Enjoy a low variable rate with no ongoing fees and borrow up to 90% of the value of the property.
3.52%
3.54%
$0
$0 p.a.
80%
A basic home loan with a competitive rate and low fees.
3.49%
4.49%
$0
$375 p.a.
90%
Discount off an already competitive interest rate for loans over $150k. NSW, QLD and ACT residents only.
3.52%
3.53%
$0
$0 p.a.
80%
A competitive variable rate product with no application or valuation fees offered by a 100% online lender.
3.68%
3.83%
$0
$10 monthly ($120 p.a.)
80%
A low interest rate home loan that allows borrowers to borrow up to 80% of the property value.
3.54%
3.58%
$0
$0 p.a.
80%
A variable rate home loan with competitive rate, redraw facility and offset account.
3.69%
4.86%
$0
$395 p.a.
90%
A special rate for first home buyers buying residential property and borrowing over $150K. 350K NAB Rewards Points offer available. Terms and conditions apply.
3.74%
3.74%
$0
$0 p.a.
80%
Pay no application fee or ongoing fees with this loan.
3.69%
3.69%
$0
$0 p.a.
90%
A special limited time offer for owner occupiers. An IMB Transaction Account must be opened with this loan.
3.64%
3.67%
$0
$0 p.a.
80%
A low rate home loan with no ongoing fees.
3.99%
4.00%
$0
$0 p.a.
80%
A low-fee variable rate investor loan with a fast online application process.
3.65%
3.66%
$0
$0 p.a.
90%
A competitive variable rate home loan with no application fee.
3.77%
3.81%
$200
$0 p.a.
95%
A basic home loan with a low interest rate and a redraw facility available.
3.69%
3.69%
$0
$0 p.a.
80%
Enjoy a low variable interest rate and no application or ongoing fees.
3.59%
3.96%
$0
$349 p.a.
90%
A variable package loan for a larger loan size with no monthly fees.
3.74%
3.75%
$0
$0 p.a.
80%
A special variable rate home loan with no application or ongoing fees.
3.62%
3.62%
$0
$0 p.a.
80%
A discounted, competitive variable rate loan with limited fees.
3.64%
3.67%
$0
$0 p.a.
80%
A home loan with a competitive variable rate, limited fees and plenty of flexibility.
3.74%
3.74%
$0
$0 p.a.
110%
Requires a family member to act as guarantor. Discounted rate available with family pledge loans. Family pledge loans
require no LMI and no deposit. NSW, Qld and ACT only.
3.64%
4.03%
$0
$395 p.a.
80%
Apply for a new owner occupier loan or refinance from another lender and receive this discounted rate.
3.78%
3.78%
$0
$0 p.a.
80%
A basic low-rate home loan that still offers some useful features.
3.99%
4.41%
$0
$395 p.a.
90%
A discounted home loan variable rate that comes with a competitive package, an eligible credit card and an offset transaction account.
4.11%
4.01%
$0
$0 p.a.
80%
Enjoy a fast application process and flexible repayment options with this fixed rate investment loan.
3.74%
3.74%
$0
$0 p.a.
90%
A competitive variable rate with a redraw facility. NSW, QLD and ACT residents only.
4.09%
4.12%
$0
$0 p.a.
95%
This loan has a high max insured LVR, making it an option for low deposit borrowers.
3.99%
4.62%
$395
$0 p.a.
80%
Fix your interest rate and pay principal and interest repayments on your investment.
4.14%
4.14%
$0
$0 p.a.
80%
An investment home loan with competitive rate and 100% offset account.
3.65%
4.84%
$0
$395 p.a.
90%
A 2 years fixed platinum package that has $0 application and a loan redraw facility.
3.88%
4.89%
$0
$395 p.a.
95%
A fixed rate package with flexible repayment options. 350K NAB Rewards Points offer available. Terms and conditions apply.
4.09%
4.12%
$0
$0 p.a.
90%
Access a fee-free offset account and a special interest rate for investors.
3.89%
4.87%
$0
$0 p.a.
90%
Enjoy a low interest rate and borrow up to 90% (with LMI) of your property's value.
3.89%
5.40%
$0
$395 p.a.
95%
A package investment loan with a competitive, discounted interest rate and 0 application fees.
3.97%
4.02%
$445
$0 p.a.
90%
Get a competitive rate without features you may not use.
3.84%
4.83%
$0
$0 p.a.
80%
Get a competitive 2-year fixed rate with no application or ongoing fees.
3.97%
3.97%
$0
$0 p.a.
90%
A competitive variable rate home loan with no ongoing fees.
3.64%
3.64%
$0
$0 p.a.
70%
A low-rate basic home loan requiring a 30% deposit.
3.69%
4.00%
$0
$350 p.a.
95%
Fix your rate for 3 years and borrow up to 95% LVR.
3.94%
3.97%
$0
$0 p.a.
80%
Access the equity in your home with a competitive interest-only rate and no application fee.
4.09%
4.11%
$0
$0 p.a.
80%
A low variable rate loan with no application or ongoing fees.
4.19%
4.19%
$0
$0 p.a.
90%
Access to redraw facility and offset account without the annual fee.
3.69%
4.47%
$0
$375 p.a.
90%
Discount off an already competitive 2 year fixed rate for loans over $150k. NSW, QLD and ACT residents only.
3.58%
3.58%
$0
$0 p.a.
70%
A low interest rate home loan with no application or ongoing fees.
3.68%
3.69%
$0
$0 p.a.
95%
A no frills loan with a competitive rate and a maximum LVR of 95%.
4.09%
3.79%
$0
$0 p.a.
95%
A competitive 3-year fixed rate loan with a high max insured LVR.
3.85%
4.82%
$600
$35 monthly ($420 p.a.)
90%
Low fixed rate offer from HSBC. Reverts to a discounted variable rate after the initial term.
3.64%
3.65%
$500
$0 p.a.
95%
A basic home loan with a promotional variable interest rate.
3.88%
4.88%
$0
$395 p.a.
95%
Refinance from your existing loan and get a $1,250 rebate. Lock in a discounted fixed rate with a low service fee.
3.69%
3.71%
$0
$0 p.a.
90%
A low rate variable home loan offer with no monthly fees or application fee charge.
3.64%
3.78%
$0
$10 monthly ($120 p.a.)
80%
A competitive variable rate home loan with flexible features. You can earn 30,000 Velocity Points for every $100k you borrow (for a limited time, subject to eligibility requirements).
3.69%
3.69%
$0
$398 p.a.
70%
Enjoy a low variable rate with no application and ongoing fees.
3.87%
3.87%
$0
$10 monthly ($120 p.a.)
90%
Get a competitive interest rate for 3 years and a discounted variable rate when the fixed period ends.
3.79%
3.80%
$0
$0 p.a.
80%
A competitive rate with no ongoing monthly fees or application fees.
3.99%
4.03%
$0
$0 p.a.
95%
Enjoy a basic home loan with a high LVR and no application or ongoing fees.
3.85%
4.95%
$0
$395 p.a.
95%
A discounted package rate for owner occupiers with the ability to package a Qantas rewards earning Amplify credit card. $1,500 cashback available for refinancers. Conditions apply.
3.99%
4.99%
$0
$395 p.a.
95%
A package home loan with fee free extra repayments available during the fixed term.
4.39%
5.42%
$300
$10 monthly ($120 p.a.)
95%
Lock in a competitive fixed rate for 3 years.
3.59%
4.42%
$600
$0 p.a.
95%
This competitive introductory rate is a limited time offer for new owner-occupiers
3.68%
3.69%
$0
$0 p.a.
90%
Get a low variable rate along with some important basic features.

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